Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
How
How Net present value, cost, and benefit change if interest rate decreases.
Net present value means difference between present value of the cash inflows and present value of cash outflows over a period of time. This tool is used to measure the value or benefit that could be derives from a project. This can also mean current value of future cash inflows from a project or investment.
Interest rates are set by the central bank and can lead to changes in the market on daily basis which can then affect the cost of capital for the firm.
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